The Hawaii Real Property Tax Act, commonly referred to as HARPTA, applies whenever real property located in Hawaii is transferred. Comparable to FIRPTA (the federal Foreign Investment In Real Property Tax Act of 1980), HARPTA requires a transferee/buyer of Hawaii real property to withhold and pay to the Hawaii Department of Taxation an amount equal to 7.25% of the contract sales price. Many believe HARPTA does not apply under certain conditions, such as when the seller is a resident of Hawaii.

In fact, HARPTA applies to all transfers of Hawaii real property unless an exemption to the withholding applies. Simply put, all transfers of Hawaii real property are subject to HARPTA. Below is a review of some of the exemptions:

The buyer is not required to withhold on the disposition of Hawaii real property if the seller furnishes a completed certification stating:

• The transferor/seller is a resident person. Sellers that are entities, such as corporations and limited liability companies, may also qualify as resident persons if they are registered with the Department of Commerce and Consumer Affairs to do business in the state of Hawaii or incorporated or formed in the state of Hawaii (single-member LLCs, however, that have not elected to be taxed as corporations will be treated as disregarded entities), or
 
• By reason of a non-recognition provision of the Internal Revenue Code as operative under Hawaii Revised Statute or the provisions of any United States treaty, the transferor/seller is not required to recognize any gain or loss with respect to the transfer, or
 
• For the year preceding the date of the transfer the property has been used by the transferor/seller as a principal residence, and the amount realized for the property does not exceed $300,000.

Buyers who receive a certification do not withhold unless they know the certification contains incorrect information. The certification must be signed by the individual, an authorized signer of a corporation or LLC, a member or general partner of a partnership, or the trustee, executor, or equivalent fiduciary of a trust or estate.

Sellers may also apply for a withholding certificate prior to closing. A withholding certificate waives or adjusts the withholding:

• If there will not be any gain on the sale, or
 
• There will be insufficient proceeds to pay the withholding after payment of all costs which include selling expenses and the amount of any mortgage or lien secured by the property.

The application for the withholding certificate must be sent by the seller to the appropriate office no later than 10-15 days prior to closing. Hawaii will not approve applications sent in later than 10 working days prior to closing or after the closing has occurred.

If the seller is unable to provide the buyer with a certificate proving they are exempt, the withholding and appropriate forms are due to the state by the 20th day after the day of transfer, also known as closing. The appropriate forms are all available on the Hawaii Department of Revenue website: https://tax.hawaii.gov

The information provided herein does not, and is not intended to, constitute legal advice; instead, all information, and content, in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; Fidelity National Title Group does not recommend or endorse the contents of the third-party sites.

Article provided by contributing author:
Diana Hoffman, Corporate Escrow Administrator
Fidelity National Title Group
National Escrow Administration